Research

Rodovid Bank [RODB] is ranked 18th among Ukrainian banks with total assets reaching USD 944 mln in May 2007. With a special focus on retail, mortgage, and credit card loans, Rodovid Bank is likely to move further up the banking sector ladder, striving to reach a top 10 position. Significant market expansion on the national level and product development are among the bank’s top priorities.

Concern Stirol, a major and the most diversified Ukrainian nitrogen fertilizer producer, is set to either change its mode of operations or become unprofitable. The main reason for future losses of current Stirol is the unavoidable rise in natural gas prices. Stirol already missed an earlier IPO opportunity, and will have no cards to play beyond Fall 2007. At that time, the company can either initiate a half-way Internal Change, or undergo an External Re-evaluation via changes in ownership. A cleanup of all business segments, necessary in both cases, would only be explicitly demonstrable within the External Re-evaluation scenario. Speculation on management’s desire to be re-evaluated is an attractive, but risky, investment opportunity.

Although Ukraine has been the biggest growth economy in Eastern Europe for the Last five years, to many people the country remains a mystery. The second largest country in Europe in terms of territory and with a population close to 47mln, it is commonly associated with Russian culture, the Orange revolution, famous sportsmen and Eurovision singers. Nevertheless, Ukraine currently represents a fast growing economy which is each day becoming more resilient to political uncertainty and high energy prices.

This report presents coverage of the most recent trends affecting Ukrtelecom, which was analyzed in our “3rd Gen Mobile: UTEL – the Hard Sell”. Declining fixed-line traffic, inability to meet its first quarter 3G development plans, and uncertainty with privatization make Ukrtelecom a delicate stock to play. On the brighter side, the company plans to significantly increase its internet, data, and channel rent revenues in 2007-2010 and to become a leading player on the mobile communications market. The future will show whether such optimism is warranted.

A lucrative purely extraction business in 2002, Ukrnafta is changing. The extraction segment is squeezed by high rent rates and low natural gas prices. The company counters by expanding the fuel retail segment. The changes intensify during 2005–2007, and our analysis shows that income from retail sales would offset rent increase losses almost fully. Ukrnafta’s margins would be boosted once the company implements another change: expansion of processing segment.

Whereas many investors have set their minds on the advantages of privatization and potential success of 3G for Ukrtelecom, we see many risks, both internal to the company (maîtrise of the technology, marketing capabilities, company-wide consistency of the offer) as well as external (mobile voice price wars and additional license offerings). What’s clear to us is that there are exciting opportunities for Ukrtelecom to benefit favorably from the aforementioned factors sparking up the value of the company in the coming years. The jury is out.